Best Ethical Investment Funds

Going green makes sense, and now your investments can go green too as consumer and market awareness has helped the sector rocket in popularity and value. President Joe Biden has made the environment one of his policy pillars thanks to measures such as the Greening Government Initiative and has also renewed the focus on cutting US carbon emissions. These measures are set to transform the US into a global leader in green technologies, and help to create new and potentially profitable investment opportunities. This has given rise to a wide range of ethical funds for investment. And the good news, from a purely financial viewpoint, is that in some cases, ethical funds are now outperforming traditional funds, with the environmental, social, and governance (ESG) category on track for a record-breaking year.

I’ve taken a comprehensive look at the best ethical investment funds on offer and identified the socially responsible funds that are the best performers in recent years so you can align your future prosperity with the well-being of the planet. I’ve also taken the time to match your funds with my ‘best buy’ investment platform, providing you with all the associated costs you need to be aware of.

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Best brokers for impact and ESG investing in March 2023

What is ESG?

ESG stands for Environmental, Social, and Governance, and is a list of criteria utilized by fund managers to measure companies’ ethical impact when being considered for inclusion in ethical funds. Fund managers will measure a company’s ethical impact by considering various factors such as the amount of waste produced, the amount of energy being used , the policies in place to tackle race and gender inequality, its investments and commitment to local communities, shareholder rights, and how transparent it is with its public reporting.

Environmental, Social, and Governance (ESG) works to encourage companies to find ways to positively impact their environment and society to take advantage of financing opportunities on the stock market.

• Environmental – The impact that companies have on climate action and waste management, water stewardship, energy resources management, and reduction of air and water pollution.
• Social – The way companies manage issues regarding human rights, consumer privacy, data security, health and safety, and gender equality.
• Governance – The effectiveness of the board’s management of a company, including ownership structure, financial reporting, and organizational culture.

Importantly, investment managers of ESG funds should avoid including companies involved in poor environmental performance, questionable labor market practices, gambling, the arms trade, animal testing, and all fossil fuel companies regardless of their market performance.

Top ESG funds to consider in March 2023

Parnassus Core Equity (PRBLX)

The Parnassus range of socially responsible funds are some of the best performing ESGs currently on the market. The firm has focused on sustainable investing since its foundation back in 1984 and has taken a lead on ESGs long before it was fashionable. Thanks to its experience, the Parnassus team are leaders when it comes to ESG research, security selection, portfolio construction, risk management, and proxy-voting strategies.

According to the Zacks Mutual Fund Rank rankings, a rating system that will help you find the best mutual funds to outperform the market, the Parnassus Core Equity Fund is well rated. This, in conjunction with its comparatively strong performance and low fees, ensures a strong recommendation from me.

TIAA-CREF Core Impact Bond (TSBIX)

TIAA-CREF Core Impact Bond is a great option for investors looking for a fund that invests in a broad spectrum of bonds that exhibit environmental, social, and governance leadership, and delivers strong long-term returns.

Led by parent company Nuveen, the firm’s ESG and fixed income impact investing division is managed by a strong team of over 100 investment sector experts. Using a proprietary ESG framework, the company ranks potential ESG investments and then invests funds into the best rated performers. Strong performance coupled with robust resources and incorporation of impact investments make for a strong overall fund.

Invesco Solar ETF (TAN)

If there is one thing that current developments in Ukraine have shown, it’s just how vulnerable to stress the global supply chain is and that it really is time to move away from fossil fuels. As such, funds such as Invesco Solar ETF make sense and are certain to continue their growth.

Currently, the fund holds the stocks of 44 global companies involved in solar technology development, solar materials production, solar installation and financing, and solar equipment manufacturing. Though there is no denying that it is somewhat pricey, the ETF has returned a three-, five- and 10-year trailing CAGR of 47.8%, 33.9%, and 11.7%, respectively.

Vanguard ESG U.S. Stock ETF (ESGV)

The Vanguard ESG U.S. Stock ETF has rocketed in popularity recently due to offering solid returns and low costs for a package that is hard to beat. The fund consists of several ethically chosen companies and includes blue chip stalwarts such as Apple, Microsoft, and Amazon.

The VFTAX has one of the lowest expense ratios of any of the funds on our list at just 14 basis points. With a low entry minimum investment of just $3,000 and an excellent track record, it is a great pick for those looking to start making commercially viable ethical investments.

Calvert International Responsible Index Fund (CDHIX)

The Calvert International Responsible Index Fund is a great choice for investors who want to start making ethical investment choices without radically changing their risk exposure. Calvert has a long history with the company’s first ESG launched in 2005. The fund selects positions in developed countries outside of the US, with an emphasis on tech-sector leaders such as Japan.

Top holdings include Taiwan Semiconductor Manufacturing, Swiss-based heavyweight Nestle, and the French pharmaceutical company Roche. The fund employs its own inhouse ESG methodology, the Calvert Principles, and limits its exposure to companies involved in animal testing, tobacco, alcohol, civilian weaponry, and gambling.

Pax Ellevate Global Women’s Leadership Fund (PXWEX)

For investors looking to invest their money in a cause-specific ESG, the Pax Ellevate Global Women’s Leadership Fund is, in my opinion, the cream of the crop, with its focus on companies that support the advancement of women in the workplace.

The fund is tied to the Impax Global Women’s Leadership Index. To create the index, the firm’s in-house Gender Analytics Team evaluates 1,600 global companies using criteria such as the representation of women in management and gender pay equality. These criteria have helped ensure a truly diverse portfolio spread, and includes positions in Estee Lauder, Amazon, and Microsoft.